State health plan killed

Calling it 'fundamentally flawed,' senators reject gov.'s proposal

SACRAMENTO — Gov. Arnold Schwarzenegger's audacious plan to arrange medical insurance for nearly all Californians -- one watched as a potential model for the nation -- was rejected Monday by the state Senate, obliterating the chance of anything but piecemeal healthcare changes from the Legislature this year.

The Senate Health Committee voted down the $14.9-billion proposal, which would have required people to hold private insurance and subsidized the premiums for those who could not afford them. The repudiation came from Republicans and Democrats, with only one of 11 senators backing the plan that Schwarzenegger and Assembly Speaker Fabian Nunez (D-Los Angeles) spent much of 2007 putting together.

Lawmakers called the plan, which passed the Assembly last month, "fundamentally flawed" and "a fairy tale" as a visibly frustrated Nunez, sitting in the committee room, muttered disagreement under his breath. Senators said the proposal, while laudable in its ambitions, might fall apart financially in a few years, leaving the state to cancel its new healthcare services or put taxpayers on the hook for billions of dollars more.

Senators said it was too risky a financial commitment when California faces a $14.5-billion budget gap that could force them to cut existing healthcare programs. Schwarzenegger has proposed $2.9 billion in healthcare cuts over the next 18 months.

"It doesn't matter if there are these good things in the bill if there isn't the money to pay for them," said Sen. Sheila Kuehl (D-Santa Monica), who chairs the health panel and has proposed that the state take over the role of providing medical insurance. "We can't simply say to the people of California, 'Go buy insurance.' "

The defeat may be a poor omen for national efforts to overhaul the country's healthcare system. The three leading Democratic presidential candidates -- Hillary Clinton, Barack Obama and John Edwards -- all have proposed similar programs aimed at expanding private insurance while allowing people who have coverage they like to keep it.

No national impetus

Healthcare advocates, including the powerful Service Employees International Union, had hoped a success in California would help build national momentum for change. Public opinion polls show increasing anxiety about the current health system, as more employers shed coverage benefits and premium costs outpace inflation each year.

At the same time, new studies have found that Americans lag citizens of many other countries in their overall health.

Massachusetts, the first state to require that citizens hold health insurance, has run into $400 million in cost overruns after more uninsured people than expected signed up for state-supported coverage.

"This shows how hard it is for states to do this on their own," said Peter Harbage, a healthcare expert at the New America Foundation who has advised the Schwarzenegger administration and Edwards. "What you really need is a national focus and a national leadership to make it happen."

About 5 million Californians lack health insurance. But opposition to the plan, which Schwarzenegger had tried to sell as one that could unite disparate interests and politicians, showed how elusive common ground could be. Tobacco companies, Blue Cross of California and employer groups -- all of which would have had new financial burdens under the plan -- lobbied against it.

Some unusual foes

At the same time, some labor unions and consumer advocates who usually support healthcare reform efforts were put off by the bill, saying it put too much responsibility on individuals and was a giveaway to private insurers. They faulted the plan's requirement that everyone have insurance, saying people would be forced to buy policies with deductibles as high as $2,500 and out-of-pocket costs that could ruin them.

The California Labor Federation and the California Medical Assn., two groups that were principal backers of the last legislative effort to overhaul healthcare, which California voters repealed in 2004, remained neutral this time.

"The Senate saw several shortfalls for consumers that we agreed needed improvement," said Art Pulaski, the secretary-treasurer of the labor federation.

The California Nurses Assn., which advocates abolishing private insurers in favor of a government-run health program, also fought the measure.

But Wendy Lazarus, president of the Children's Partnership, an advocacy group based in Santa Monica and Washington, D.C., blamed the Senate for "a giant step backward" that ended "the best chance for hundreds of thousands of kids who can't get basic healthcare coverage today."

Schwarzenegger issued a statement after the vote calling it a setback and vowing that he would not walk away from "comprehensive healthcare reform."

"The problems will not disappear," he said. "In fact, they are likely to get worse."